Navigating Life's Transitions: Out with the old ... but not so fast!

Citizen Contributor

4:00 AM, Jan 25, 2013

As every older adult knows, the longer the life, the more possessions one accumulates. Eventually what happens is, you are possessed by an urge to clear up the clutter or a scheduled downsizing to a smaller home or condo creates such a necessity.

Sometimes it is even the adult children who decide to volunteer their services to help their parents get rid of the excess (take the offer, parents). But knowing what to keep and what to throw away is tough. Allow me to share the advice a daily money manager would share with you — so that you keep the treasure and throw out only the trash.

The first general rule is: When in doubt, don't throw it out! Unless you are certain you can obtain the records electronically — say, from your bank (and they often charge a hefty fee for old records) or insurance company, better hang on to the originals.

Also hold onto:

 Tax returns and supporting documents: In general, anything to do with your taxes should be kept for at least seven years. The IRS has three years from your filing date to audit your return if it suspects good faith errors and you have the same amount of time to file an amended return if you find a mistake. However, the IRS has six years to challenge your return if it thinks you underreported your income by 25 percent or more. If you fail to file a return or filed a fraudulent return there is no limit on when the IRS can come after you.

 IRA contributions: If you made an after-tax contribution to an IRA, you will need to keep your records indefinitely to prove that you already paid tax on the money when it is time to make a withdrawal.

 Retirement plan statements: Keep the quarterly statements until you receive the annual summary and if everything matches up, you can shred the quarterly statements. Keep the annual summaries until you close the account.

 Bank records: Keep any checks or statements related to your taxes, business expenses, home improvements, or mortgage payments.

 Brokerage statements: You must keep these until you sell the securities covered by them to prove whether you have capital gains or losses for your tax return. If you hold stocks or bonds for many years, you will need to keep the statements. The exception is if the cost basis and date of acquisition is listed on the statements. In this case, you only need to keep the year-end statements to support your tax return.

 Bills: Keep bills until you receive the cancelled check or credit card statement showing that your payment was received. Be sure to keep bills for big purchases like jewelry, furniture, art, appliances, cars, computers, etc., so that you can prove the value of these items to your insurance company in the event they are lost, stolen or destroyed in a covered disaster such as a fire.

 Credit card receipts and statements: Keep original receipts until your statements come and then match them up. You can then discard the receipts. Keep the statements for seven years if they document tax-related expenses.

 Paycheck stubs: Keep until you receive your annual W-2 form from your employer(s) and make sure the information matches. If it doesn't match, request a corrected W-2 from your employer(s).

 House/condo records: Keep all records documenting the purchase price and the cost of all improvements, as well as records of expenses incurred in selling and buying the property for seven years after you sell it.

 Medical bills and records: Keep all medical bills and supporting documentation such as cancelled checks or credit card statements until you are sure that the bill has been acknowledged as having been paid in full by you and/or your insurance company.